Non-warrantable condos: why the big lenders say no, and how a portfolio bank says yes
You found a condo you love, your credit is fine, and the loan got declined anyway. The problem isn't you; it's the building. When a condominium project fails Fannie Mae or Freddie Mac's project rules it is non-warrantable, and most lenders can't touch it. Here is what trips a building, and how we finance those units in downtown Crystal Lake, on the Fox River in Appleton, and everywhere in between.
Home State Bank mortgage teamCrystal Lake, IL · Appleton, WI · NMLS 478452Updated September 9, 20266-minute readWhat warrantable means
A warrantable condo is one whose project passes the agencies' review, so a loan on a unit there can be sold to Fannie Mae or Freddie Mac. The review looks at the whole building, not your unit: how many units one owner controls, how much of the building is commercial, whether the HOA is being sued, whether it saves for repairs. Fail any test and every lender who sells its loans has to decline, no matter how strong the borrower.
The tests that fail buildings, with the 2026 numbers
The most common reasons a project comes back non-warrantable under current Fannie Mae guidance:
| Test | The rule | Where it bites |
|---|---|---|
| Single-entity ownership | Max 2 units per owner in 5–20 unit projects; max 20% in 21+ unit projects | Small buildings where a developer or investor kept several units |
| Commercial space | No more than 35% of the building | Mixed-use buildings with ground-floor retail or offices |
| Reserves | At least 10% of the annual budget to reserves (rising to 15% for applications from Jan. 4, 2027) | Older associations that kept dues low |
| Delinquent dues | No more than 15% of units 60+ days late | Buildings with a few chronic non-payers |
| Litigation | Ineligible if the HOA is party to litigation over safety, structure, or habitability | Construction-defect suits, even when the association is likely to win |
| New construction | At least 50% of units sold to owner-occupants or second-home buyers | New buildings still in sales |
How a portfolio lender finances the unit anyway
Home State Bank doesn't need Fannie Mae's approval of the building, because we aren't selling the loan to Fannie Mae. We review the project ourselves: the budget, the reserve study, the litigation, the ownership mix. If the association is solvent and the building is sound, we can lend on a unit that every agency lender declined. We know most of the associations in McHenry County and the Fox Valley by name, which shortens the review.
Expect a somewhat larger down payment than a warrantable condo, typically 15% to 20%, and expect us to ask for the HOA's financials and meeting minutes. Rates are set off our cost of funds and are usually close to conforming pricing.
What to ask before you write the offer
Five questions to the listing agent or the association that will tell you which lane you're in:
- How many units are owned by one person or entity?
- Is there commercial space in the building, and what share?
- Is the association involved in any litigation?
- What percentage of the annual budget goes to reserves, and when was the last reserve study?
- How many units are more than 60 days behind on dues?
Questions people ask
- Can I get an FHA loan on a non-warrantable condo?
- Usually not. FHA has its own project approval, and buildings that fail Fannie Mae's tests often fail FHA's. FHA does allow single-unit approvals in some unapproved buildings; ask.
- Does non-warrantable mean the building is a bad investment?
- No. It means the building doesn't fit the agencies' resale box. Many are excellent buildings with one technical issue, such as a retail tenant on the ground floor.
- Will my rate be higher?
- Portfolio pricing varies with the market. It is often close to conforming and sometimes better. The larger difference is the down payment, which usually runs 15% to 20%.
Sources
This article is general information, not financial, tax, or legal advice, and not a commitment to lend. Program terms, limits, and rates change; confirm current figures with a loan officer. Home State Bank, N.A. NMLS 478452. Member FDIC · Equal Housing Lender.
